(Reuters) - NATO member Turkey has chosen a Chinese defense firm that has been sanctioned by Washington to co-produce a $4 billion long-range air and missile defense system, rejecting rival bids from Russian, U.S. and European firms.

The Turkish defense minister announced the decision to award the contract to China Precision Machinery Import and Export Corp (CPMIEC) in a statement on Thursday.

In February, the United States announced sanctions on CPMIEC for violations of the Iran, North Korea and Syria Nonproliferation Act.

It did not say precisely what CPMIEC had done, but Washington has penalized the company before. In 2003, Washington said it was extending sanctions on the firm for arms sales to Iran. It was unclear when those measures were first imposed.

Officials at state-run CPMIEC, the marketing arm of China's missile manufacturing industry, could not immediately be reached for comment.

Turkey, which has the second-largest deployable military force in the NATO alliance, has no long-range missile defense system of its own, but NATO has deployed the U.S.-built Patriot air and missile defense system there since 2012.

The winning Chinese FD-2000 system beat the Patriot, the Russian S-400 and the French-Italian Eurosam Samp-T.

Raytheon Co (RTN.N), which builds the Patriot missile system, said it had been informed about the Turkish decision and hoped to get a briefing soon. It said there were 200 Patriot units deployed in 12 countries, including Turkey.

"NATO has long supported the system, deploying Patriots in five aligned countries and, in 2012, providing a requested Patriot deployment to Turkey. Given this strong performance, we hope to have an opportunity to debrief and learn more about this decision," Raytheon spokesman Mike Doble said.

CPMIEC does not make missiles itself. The two main manufacturers are China Aerospace Science and Technology Corp (CASC) and China Aerospace Science and Industry Corp (CASIC). CASC makes intercontinental ballistic missiles, while CASIC focuses on short- and intermediate-range rockets.

After decades of steep military spending increases and cash injections into local contractors, experts say some Chinese-made equipment is now comparable to Russian or Western weaponry.

China last year became the world's fifth-biggest arms supplier with 5 percent of the market, according to the Stockholm International Peace Research Institute. Pakistan was its biggest buyer.

Turkish Defense Minister Ismet Yilmaz's statement also said a contract to produce six corvette ships by Koc Holding (KCHOL.IS), Turkey's biggest conglomerate, had been canceled. A contract to build two ships would be awarded to the Turkish naval shipyard. The construction of four remaining ships will be put out to tender later, Yilmaz said.

Koc Holding was recently accused of backing the 1997 military overthrow of Turkey's first Islamist-led government, sending the firm's shares tumbling on fears of a deepening vendetta against the country's secular business elite.

The Turkish government launched a probe into the taxes of Koc energy firms in July, weeks after criticizing one of the family's hotels for sheltering protesters during anti-government unrest that rocked several cities over the summer.

(Writing by Ece Toksabay, with additional reporting by Andrea Shalal-Esa in Washington, David Lague in Hong Kong and Hui Li in Beijing; Editing by Dean Yates and Ian Geoghegan)

Turkish Prime Minister Recep Tayyip Erdogan told reporters Oct. 25 that Ankara would be open to new offers if talks with China Precision Machinery Import Export Corp. (CPMIEC) fail. “Currently, I don’t know if there are different proposals from the other parties. If there are, they could be considered,” Erdogan said.

U.S. arms makers Raytheon Co and Lockheed Martin Corp are considering ways to sweeten their offer to build a Patriot missile defense system for Turkey after Ankara said it could still back away from a provisional $3.4 billion deal with China, sources familiar with the issue said on Tuesday.

“There are internal discussions going on about improving the Patriot offer,” said one source, who is familiar with the talks but not authorized to speak publicly.